WORLD FOREX: Dlr At Fresh 7-Mo Low Vs Yen; Next Target Y90

TakashiMochizuki

TOKYO (MarketWatch) -- The dollar marked a fresh multi-month low against the yen in Asia Monday, and traders said the currency is likely to fall below Y90 this week due to growing pessimism over the outlook for the U.S. economy.

The greenback fell to Y90.18, its the lowest level since Feb. 12, from Y90.64 in New York Friday. Profit-taking on the yen by funds caused the U.S. unit to recover a tad to Y90.49 as of 0450 GMT.

However, the view that the U.S. economy remains weak will likely further drag down the dollar, traders said. Fragile financial market conditions in the U.S. means the Federal Reserve will likely have to keep interest rates low and pump funds into markets. Expectations that a worsening U.S. job market will hurt consumer spending are also spurring dollar selling.

"I don't think investors' dollar-bearish sentiment will change this week. Players should be ready for a slide in the dollar below the psychologically-important Y90 mark anytime this week," said Hiroshi Maeba, a senior dealer at Nomura Securities.

Players are also wondering how the new Democratic Party of Japan administration will deal with recent yen strengthening, considering that some of its lawmakers have voiced support for a strong Japanese currency. However, a rising yen tends to weigh on exports, a key part of Japan's economy, by making Japanese products more expensive abroad.

"The new and untested government's first challenge will likely be currency policy, and there's a risk the policy, if handled improperly, will propel the yen much higher," said Yoichi Itoh, general manager of the treasury department at Sumitomo Trust and Banking.

Meanwhile, the euro fell against the dollar and yen as investors squared their positions, but the market's dollar bearishness means the European currency could rise again soon. It dropped to $1.4541 from New York Friday's $1.4582, but some said it could head back above $1.4600. The euro also fell to Y131.56 at 0450 GMT from Y132.21 late Friday.

Reflecting profit-taking in the U.S. unit, the Dollar Index, which measures the currency's value against six major currencies including the euro, rose to 76.87 from 76.74 in New York Friday.

Traders said they will be watching U.S. economic data this week, such as Tuesday's retail sales for August, to judge the current state of the U.S. economy.

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